63. As we write this
report, we are aware of the acute crisis faced by many farmers
in the United Kingdom. A primary cause of this is the strength
of sterling. For cattle farmers this has compounded serious problems
linked with BSE, namely the export ban on beef and measures to
eliminate the disease. Farming here, as elsewhere in the Community,
is a diverse industry and the ability to weather such difficult
periods varies greatly among farmers. For small farmers, for those
who have borrowed heavily and for those operating in adverse natural
conditions, survival may well be threatened. Agenda 2000
on the other hand is concerned with the longer-term development
of the European Union including its agricultural sector. As such,
it does not address the current situation in British agriculture.
The current situation, however, illustrates the acute problems
which arise when economic circumstances force precipitate change
on agriculture. If the long-term prospect of adjustment to globally
competitive agriculture is not to cause great and prolonged hardship,
it is critical that the reorientation of the industry to a position
where it can compete successfully is commenced as soon as possible.
If not, change may be thrust upon the industry at an unnecessarily
painful pace.

64. We are disappointed
that the Agenda 2000 Communication does not go anywhere
near far enough to prepare the Community's agriculture for competition
in world markets without continued protection. It offers no clear,
timetabled strategy for the removal of price support, quotas or
compensation payments related to production. This Committee and
indeed successive Governments have long argued for such a move.
Only in this context can the scale and direction of adjustment
needed within the industry be made plain. It is only in relation
to a competitive agricultural industry that durable judgments
can be made about the need for policies specifically designed
to attain environmental goals or to create a vibrant and economically
self-sustaining rural economy. The failure of the Agenda 2000
Communication to make proposals which set in train the process
of creating a competitive agriculture creates uncertainty, misdirection
of investment, false expectations about the future viability of
some agricultural activities and conceals the likely scale of
change. It is all the more alarming that even these inadequate
measures will be weakened further in the long process of negotiation
in the Council of Ministers.

65. The Committee recognises
that the transition to a competitive agriculture will involve
substantial changes in the current pattern of farming within Europe.
The difficulty of making these changes will be minimised if they
are spread over a period of years and developed as soon as possible.
In order to make changes in a socially acceptable manner there
is justification for compensation to assist the process. It is
essential that such compensation should be for a finite period
and closely linked to the process of change. It must relate to
the progressive removal of price support as the Community's agriculture
equips itself to compete in the world market, and the introduction
of rural environmental and development policies, suggested in
Agenda 2000 and discussed below.

66. Agenda 2000
proposes reductions in some support prices but an increase in
compensation payments of about four billion ecu per annum for
the Community as a whole. Critically, it makes no mention of a
time limit. As a result, farmers will continue to produce and
invest on the basis of their total expected revenues from both
the market and from compensation. Adjustment to the market will
be frustrated. This arrangement weakens the position of the Community
in relation both to its international negotiating position and
to the prospects of enlargement. Compensation linked to continued
production is unlikely to be acceptable in the forthcoming WTO
negotiations. The Commission's declared unwillingness to extend
compensation to any new Member States, on the reasonable ground
that on entering the Community they will experience no price cut,
will become increasingly discriminatory within a single market
should those farmers who happen to be in the existing Community
continue to receive compensation related to production. The Committee
believes that it is essential that, in developing its Agenda
2000 proposals, the Commission should propose that compensation
payments for price cuts should be clearly stated to be degressive
and time limited.

67. It is in the context
of the need to move to a competitive agriculture that Agenda
2000's suggestion that compensation payments should be modulated
are most unsatisfactory. Modulation, or the capping of payments
to farmers, introduces an artificial restraint on farm amalgamation
and offends against the spirit of the reform proposals, which
are based on the necessity to introduce greater competitiveness
into European agriculture. We would strongly object to any proposals
to introduce, as a cost-saving device or for any other reason,
the capping of payments to farmers, whether applied on an individual
farm basis throughout the Community or left to the discretion
of Member States after the allocation of national quotas. Not
only would this discriminate against United Kingdom farms, which
on average are larger than elsewhere in the Community, but it
would obstruct precisely those structural changes needed to create
a modern, competitive agricultural industry.

68. Agenda 2000
says little about the wider economic context. Adjustment to a
competitive market is not simply a question of what happens within
the farm fence. Increasingly, the ability of the sector as a whole
to compete depends on the operation of the entire food-chain from
input supplier to the ultimate retailer. The need to develop highly
productive and environmentally acceptable technologies; the importance
of capturing the benefits of information technology to assist
supply decisions; and the need for increased vigilance to avoid
the establishment of monopoly positions anywhere in the chain
are all relevant to the success of the Community's agriculture
and food sector. In a Communication which looks towards the future
of Europe and its agriculture in the next century it is disappointing
that Agenda 2000 has nothing to say on this wider economic
context of reform.

69. Agriculture, like
all other industries, has to work within a regulatory framework
designed to protect the public interest, for example, measures
to prevent the pollution of water or air. As technologies change
and new pressures are placed on natural resources, the regulatory
framework has to be adapted to ensure that the public interest
is adequately secured. Such a framework forms a common basis upon
which all farms must operate. Within a single market, such as
the European Community, it needs to be applied uniformly if competition
is not to be distorted. Regulations, however, can only provide
a starting point. To be effective they must be workable and enforceable.
In an industry including many small businesses, geographically
dispersed throughout a large area, it is essential that the regulatory
framework concentrates on the basic minimum of rules needed to
safeguard national interests. These rules should be as simple
and as enforceable as possible.

70. The interests of
the Community in the impact of agriculture on the environment
goes much further than can be expressed through regulation. Agriculture
produces a plurality of products, including environmental services.
A move to a competitive agriculture will affect not only those
products which are subject to the CAP but the delivery of environmental
services which currently arrive (if at all) as a by-product. Some
of the changes brought about by competition might benefit the
environment, for example, lower stocking densities in areas where
over grazing is a problem, or by reduced inputs on land moved
from arable to extensive grassland management. Other changes could
be damaging as, under pressure of financial stringency, farmers
neglected maintenance of non-productive assets (such as hedges,
walls or water courses) or were driven to more intensive farming
systems to maintain their level of income. There will thus be
a need for rural environment policies which respond to the environmental
costs and benefits of changes in farming practice. Public payments
to secure environmental goods will be more effective as production
incentives are reduced. Still more, reductions in commodity related
payments will free financial resources currently used to maintain
returns to farmers. Some of the funds so released could fund an
expanded environmental policy which would secure more valuable
environmental products than can be delivered under present arrangements.
An environmental policy, including, for example, stewardship schemes,
funded in this way would not be implemented solely by farmers
but by all those who could deliver the environmental benefits
most effectively and at least cost.

71. Agenda 2000
proposes to build on the start made in the "accompanying
measures" which formed part of the MacSharry package of 1992.
In England this has been put into effect through the Environmentally
Sensitive Areas and the Countryside Stewardship scheme. Under
the ESA scheme, which is geographically targeted, there are now
22 designated areas, covering over a million hectares of land,
some ten per cent of agricultural land. The Government have no
plans to make further designations. Outside the ESAs the Government
intend to develop Countryside Stewardship, a horizontal as distinct
from a geographically designated scheme, as their main incentive
scheme. So far this scheme covers less than one per cent of agricultural
land. There is much scope for the expansion of measures in this
country and similar situations exist in other Member States. We
consider the horizontal rather than area specific approach to
be appropriate so that all agriculture has environmental measures
available to it. An horizontal approach does not imply a single
level of approach to the environment. There needs to be a priority
of objectives which relates to the environmental benefits available.
The test for support would be not that a project fell in a particular
area but that it was of greatest value to those providing funding.
As existing ESA agreements come to an end, the projects they funded
would continue to qualify for support provided that they fell
within a sufficiently high priority.

72. Agenda 2000
recognises that environmental schemes have to be applied locally
and must reflect the diverse environmental situation and values
which exist within the Union. However, there is a danger that
this may lead to complexity and potential confusion at the point
at which decisions are made by farmers and the possibility that
such schemes may be used by national or regional governments to
prop up non-competitive farm businesses rather than to meet identifiable
environmental criteria. At the farm level this suggests that simplification
must be an important goal of a renewed environmental policy. In
place of the bewildering array of schemes offering funding from
different sources on different terms for different but sometimes
overlapping purposes, the Committee supports the Commission's
intention to establish a single menu accessed through one source
and covering the whole range of environmental objectives for which
Community funding might be made available. An approach along these
lines appears to have been adopted in the Countryside Commission
for Wales' successful experiment in the Welsh uplands, Tir Cymen.
This has proved popular with farmers and we commend it as a model
for the development of Community environmental policies.

73. In the United Kingdom,
environmental schemes have either been linked to specific sites
or applied on so modest a scale that only a minority of farmers
has been involved. Elsewhere in the Community, notably in Germany,
funds have been allocated on "environmental" grounds
to a very high proportion of farmers with very modest requirements
in terms of changed farming practices. This raises the spectre
that environmental policy may be perceived as a disguised form
of support for production, and so fall foul of the Community's
commitments under the WTO. The Committee welcomes the intention
expressed in Agenda 2000 to extend the environmental programme.
It believes that this should be available to farmers generally,
not just focused on a small number of special cases. We emphasise
the need, however, in drawing up a menu of acceptable schemes,
to ensure that schemes are fully decoupled from production and
do not form covert production subsidies. This ensures both their
environmental authenticity and their long-term acceptability.
Schemes which fail this test may well come to be discredited and
seen as attempts to legitimise continued protection for non-competitive
farming businesses.

74. Agenda 2000
points to the considerable overlap between areas of high nature
value and Less Favoured Areas. Member States have always pressed
to increase the number of LFAs within their territory and as a
result more than half of the Community's utilised agricultural
area is now classified in this way. Farmers within these regions
receive additional compensatory allowances to offset natural handicaps,
of which the headage payments under the United Kingdom's Hill
Livestock Compensatory Allowances are an example. This approach
has, for example, encouraged farmers vastly to increase the level
of sheep stocking in order to qualify for the higher rewards offered
(which has been maintained despite the introduction of a quota
system). Such intensification damages the natural environment
and, although provision exists for Member States to impose environmental
conditions on such payments, very little use has been made of
it. This situation provides an example of the current contradictions
between production and environment policies.

75. The Commission now
seeks to develop support for farming in LFAs based on the positive
contribution they may make to environmental goals. This would
require the introduction of specific environmental objectives.
In this way, such support can be regarded as decoupled and so
defensible in terms of the next WTO round. The Committee recognises
that there is a genuine public demand to maintain a living countryside
in these regions, to which policy must respond. While Community
funds may have a role to play, such priorities should however
be decided and primarily funded by Member States or their regions.

76. In principle, environmental
policy should enable those who benefit from a policy to choose
to pay for it, or those who impose environmental costs on others
to foot the bill for doing so. Whilst it is impossible to legislate
precisely for such an outcome the principle is relevant. Within
the Community there are some environmental costs and benefits
which apply to the whole Community. Many are much more local,
reflecting both differences in the natural environment and differences
in the way in which it is valued. This suggests that, within a
programme approved by the Community, there should be a diversity
of funding sources and a plurality of decision centres related
to the specific environmental goals of the policies concerned.
Each funding decision has to be justified in its own right to
those who are contributing the resources. The fact that savings
may emerge from changes in other policies, for example commodity
regimes under the CAP, is not in itself a justification for spending
more on environmental policy. That must depend on the outcome
of political decisions at each level within the Community. The
agri-environmental policy should itself ensure that environmental
considerations form part of such resource allocation decisions
and that where environmental benefits are seen to be of general
benefit to the Community they are adequately funded.

77. The application
of these principles raises a number of practical questions in
relation to the existing pattern of funding upon which the Agenda
2000 paper proposes to build. In future, we consider that
capital as well as recurrent schemes should qualify for Community
co-financing. In the United Kingdom the failure to fund capital
items has limited the Community contribution to the Countryside
Stewardship scheme to some ten per cent. Secondly, whilst there
is a clear case for Community involvement in funding some parts
of the environmental programme, this is not and should not be
the same for all activities in a particular region. This is in
contrast with the co-financing practices discussed below. Thirdly,
environmental goods should be bought from the most efficient provider.
Although in many cases this may be the farmer, it is by no means
necessary that this should be the case and the opportunity to
access such funds should be open to all potential providers.

78. Past funding procedures
have relied on a measure of co-financing from the Community and
the Member State. Generally, the proportion of support from the
Community budget has been highest in those regions which are poorest,
for example Community 75 per cent to Member State 25 per cent
funding in Ireland as opposed to 50 : 50 in the United Kingdom.
Agenda 2000 does not propose to change this but the logic
of such an approach should be questioned. We argue that Community
funding for rural environmental policy should relate to Community
benefit. The gains to the Community may be very high for some
schemes which operate in all Member States, including those which
are affluent, and very low for some schemes thought appropriate
for some sparsely-populated low-income regions. Current policy
confuses the case for cohesion funding with that for environmental
policy. A more effective environmental policy would result if
this confusion was ended.